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Newsom Says California’s Deficit Is $30 Billion Lower Than Reported, Unveils $292 Billion Budget Plan

Newsom Says California’s Deficit Is $30 Billion Lower Than Reported, Unveils $292 Billion Budget Plan

California Gov. Gavin Newsom speaks during a press conference at the Unity Council in Oakland, Calif., on May 10, 2021. (Justin Sullivan/Getty Images)

Travis Gillmore

Travis Gillmore

1/10/2024

Updated: 1/16/2024

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SACRAMENTO, Calif.—Faced with a multi-billion-dollar deficit, California Gov. Gavin Newsom released Jan. 10 his fiscal year 2024–2025 budget proposal, with plans to use reserves and to reduce and defer spending to balance the state’s finances.
“If there’s a narrative this year, it’s all about accountability,” Mr. Newsom said during a press conference, after submitting his proposal.
While the state’s nonpartisan Legislative Analyst’s Office estimated a $68 billion budget deficit for the year in a report released in December, the governor said his office’s calculations showed the total closer to $38 billion.
He plans to close the budget gap by dipping into rainy day funds and safety net reserves for $13.1 billion and a combination of nearly $12 billion in “belt-tightening” and about $7.2 billion in spending deferrals.
The $30 billion discrepancy, he said, is related to different short-term revenue projections and variances in funding sources and workforce spending reductions—achievable by streamlining government operations.
“The question will be whether the governor’s lower deficit number or the nonpartisan estimate is accurate,” State Sen. Roger Niello (R-Fair Oaks) said in a Republican Caucus press release following the governor’s announcement.
Based on Mr. Newsom’s proposal, California—the fifth largest economy in the world—would operate on a $291.5 billion budget in the coming fiscal year, down from $308 billion in the prior.
Highlighting themes of “correction” and “normalization” following a “period of unprecedented distortion,” the governor noted the unusual predicament facing budget planners last year because tax filing deadlines were delayed by the federal government after winter storms impacted the state.
“All of this uncertainty because we experienced something that’s never happened in the history of this state,” Mr. Newsom said.
With revenue coming in November instead of April, officials were forced to forecast last year and are now having to adjust to fiscal realities, he said.
“We knew the risks of being forced to budget with a blindfold on,” Mr. Newsom wrote Jan. 10 in a letter to legislators introducing the budget proposal. “Now that the receipts are in, we must bring our books back into balance ... We must correct for more volatility than originally anticipated.”
Some critical of recent fiscal policies said reductions were needed earlier to prevent financial distress.
“Today the governor had his usual surplus of words to weave his way through a deficit of dollars,” Mr. Niello said. “I’m glad that he listened to our warnings to take early action, but he could have heeded warnings and taken more caution last year.”
California's Capitol building in Sacramento, Calif., on the night of Jan. 9, 2024. (Travis Gillmore/The Epoch Times)

California's Capitol building in Sacramento, Calif., on the night of Jan. 9, 2024. (Travis Gillmore/The Epoch Times)

Others said high levels of spending are detrimental and recommended paring back and focusing on essential core services that benefit taxpayers.
“After years of ignoring Republican warnings about unsustainable spending, legislative Democrats and Gavin Newsom now have to deal with a massive deficit,” Assembly Minority Leader Assemblyman James Gallagher (R-Yuba City) told The Epoch Times by email Jan. 10. “Our government needs to get back to basics and stop wasting tax dollars on an ineffective and unaccountable bureaucracy.”
Pointing out elements in the governor’s plan that he suggested are problematic, including adjustments to education funding and the use of so-called accounting tricks to manipulate numbers by borrowing and deferring costs, the assemblyman said more needs to be done to secure financial stability.
“It’s time to bring California’s budget under control, but not through accounting gimmicks or cuts to education,” Mr. Gallagher said.
Budget concerns arose in earnest with the analysts’ determination in December that a “severe revenue decline” resulted in a situation that constitutes a “fiscal budget emergency.”
The analysts’ report described a shortfall of $47 billion in anticipated personal income and corporate tax revenues, though the governor’s team reported a miss closer to $43 billion.
One lawmaker said Californians are paying the price for years of one-sided policy decisions, with some choosing to leave in response.
“Welcome to year six of ‘Gavinomics’ where his budgets turn surpluses into deficits and his policies push Californians to flee,” Senate Minority Leader Sen. Brian W. Jones (R-San Diego) said in the Caucus press release.
Some have suggested that businesses and residents leaving the state over the last year could be impacting the state’s finances, but the governor downplayed such ideas.
“It’s significantly tempered,” Mr. Newsom said in response to a question from The Epoch Times. “No, I don’t think it’s playing an outsize role, at all.”
The governor pointed to figures that show a 0.1 percent loss of population between the summer of 2022 and 2023.
Those numbers, however, reveal a net outmigration of more than 100,000 residents mitigated by an increase in international immigration and births, according to the Department of Finance statistics.
California Gov. Gavin Newsom visits a property acquired by the University of California–Los Angeles in Los Angeles on Jan. 3, 2024. (John Fredricks/The Epoch Times)

California Gov. Gavin Newsom visits a property acquired by the University of California–Los Angeles in Los Angeles on Jan. 3, 2024. (John Fredricks/The Epoch Times)

Furthermore, census bureau data reveals more people with higher degrees are taking their talent, and typically their higher incomes with them, to other states at a faster pace than similarly educated people are moving in.
Such suggests, according to some economists, that the state is losing some of the tax base that it relies on to fund its progressive tax system.
The governor said the Golden State mints more millionaires than any other and noted the “record-breaking” prevalence of uber-wealthy individuals making in excess of $50 million.
Regarding how to convince people and businesses that left to return to the state, he said that others will likely take advantage of opportunities presented by some leaving.
“We’re a conveyor belt for talent,” Mr. Newsom said to a follow-up question by The Epoch Times. “And when someone decides to move out, we have 15 more opportunities for people to come in and get the benefits.”
The governor said work began last year to address the budget dilemma, which is evidenced by the 156 vetoes last year—50 of them including a message about fiscal prudence.
“It was reflected in all those vetoes that everyone loves to hate,” Mr. Newsom said during the press conference. “Imagine if we had signed off on all of those.”
To balance the budget, the governor is proposing about $2.9 billion in cuts to climate measures and about $1.2 billion slated for housing—with deferrals in new funding scheduled for the University of California and California State University systems.
With the proposal now introduced, the Legislature will work with the governor to pass a budget plan, with a May revision coming after tax receipts are due in April.
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Travis Gillmore

Travis Gillmore

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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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